The Economic Consequences Of The France-Italy Diplomatic Crisis Might Be Worse Than Expected

In the past few months, France and Italy have been undergoing a diplomatic crisis that might have reached a red-flag point. Since June 2018, when the Five Stars Movement-League coalition government came into power, the two countries have engaged in a war of words which has now escalated at the point that Paris has decided to recall its ambassador to Rome for consultation. It did not happen since June 1940, when Italy declared war on France. Benjamin Griveaux, the French government’s spokesman, has described the action as symbolic and temporary but also underlined the importance “to make a statement” against “unfounded attacks and outlandish claims” by Italian leaders. As momentary and metaphorical the decision can be, the economic consequences could be quite real.

Italian Prime Minister Giuseppe Conte attend a debate on the future Europe at the European Parliament in Strasbourg, eastern France, Tuesday Feb. 12, 2019. France recalled its ambassador to Italy last week in the two EU countries' biggest diplomatic dispute since World War II. (AP Photo/Jean-Francois Badias)ASSOCIATED PRESS

Since he took office as deputy prime minister, Luigi Di Maio, head of the anti-establishment Five Stars Movement (M5S), repletely attacked Paris on several bases. Even before coming to power, the populist party opposed the project of construction of the high-speed railway that will supposedly connect Turin and Lyon. After forming a coalition government with the League, which has always given support to the project, the M5S moderated its tone but ultimately kept its line, criticizing the costs of the project, especially since traffic is decreasing, and addressing several environmental issues.

As this could be mostly criticism towards an infrastructure project rather than towards France’s actions, the accusations Di Maio made about French "colonialism" in Africa and the country's role in the refugee crisis does not leave space for interpretations. M5S leaders have frequently blamed France for creating political and economic instability in Africa, fueling migration flows and ultimately not taking within their borders enough immigrants and not respecting European agreements. Di Maio repeatedly described France’s intervention in Libya in 2011 as the main reason for security issues in the region, and the monetary control Paris has over the ex-colonies, because of the CFA Franc’s constraints to the French Franc and the Bank of France, as what keeps West African countries in poverty and pushes people to escape.

The straw that broke the camel’s back was the meeting between M5S leaders and representative of gilets jaunes, the protesters that have been opposing French president Emmanuel Macron bringing disorders all over France in the past weeks for the rise of oil prices. The public support of the Italian deputy prime minister to the wave of demonstrations that are undermining Macron’s figure crossed the line.

Vincenzo Boccia, Confindustria industrial employers’ chief, urged the Italian government to restore normal relations with France, underlining the major economic consequences that the tension between the two countries might have. “Our exports could suffer from major damages: France is our second trading partner after Germany, and now it is possible that the French public opinion might grow a sentiment of rejection towards Italian products”. Boccia has then said that it makes sense for issues like the high-speed railway to create tension and hostility between two parts, but it is not acceptable for a minister to get involved with political movements from other countries, especially when these are opposing the head of the state. “France has invested billions in Italy (…), we are talking about amounts that keep the economy moving ahead”.

The two countries have always shared tight economic ties, which in 2017 have yielded over €76.6 billion ($86.4b). However, there is an imbalance within bilateral relations: France is one of the most present countries in Italy, controlling over 1,900 businesses and 250,000 employees, while Italy administers only a little over a thousand companies in the central European country. French investors are most active in the banking sector. The CEOs of two of the most important Italian banks, Generali and Unicredit, are French and at the same time the biggest French banking groups, Bnp-Paribas and Credit Agricole, share important stocks in many smaller Italian banks. Breton businessman Vincent Bolloré owns the 8% of Mediobanca, the 24% of Telecom Italia, the largest Italian telecommunications company, and the 28.8% of Mediaset, the mass media company controlled by the Berlusconi family.

Luxury is another field where many French businesses got involved in across borders. LVMH Moët Hennessy Louis Vuitton SE, commonly known as LVMH, controls many brands in Italy, such as Bulgari, Fendi, Emilio Pucci and more. Francois-Henri Pinault is then a major shareholder in Gucci, BottegaVeneta, Pomellato and other high-quality brands. The Italian food industry also sees the participation of important French corporations. For example, the two largest enterprises in milk production are controlled by French groups. Finally, French firms also work a lot in the Italian energy sector and in the retail industry.

Some economic aspects are already unfolding. After the latest events between Paris and Rome, Air France decided to reconsider its role in the Alitalia’s rescue plan. The French airline allegedly will not take part anymore in the bailout plan because of “political and institutional reasons”, as reported by Italian economic newspaper Il Sole 24 Ore. Now the future of the Italian company is every day less clear, just like the one Italy is going towards if it keeps defying its European allies.

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